1. The Toy Industryand Recalls BA 358: Lacey Bowman Allie Bricek Frank Castronovo Lorelay Corona Matthew Vital

2. The Toy Industry Term used to describe industries that produce small number of goods in any material Hinges, buttons, belts, hooks, etc. “Playthings” 1st based on small-cottage manufactories (London) Rise of the middle class, a demand that led to rapid expansion of the industry Mid-18th century Later, a number of very large manufactories were built.

3. Background (Cont’d) The US toy manufacturing industry includes: About 700 companies and Has annual revenue of $20 billion Most manufacturing is conducted in overseas factories Primarily in China. Highly concentrated industry Top 50 companies generate about 75%of revenue

5. Specialize in product segment

7. Have scale advantages in:

8. Purchasing

9. Manufacturing

10. Distributing

11. Selling

13. Differences between US & International Companies US Traditional Toy Markets

14. Differences between US & International Companies International Traditional Toy Markets

15. Major Players Mattel Hasbro Bandai Lego Tiger Electronics

16. Matel "Leadership" at Mattel is the ability to develop and communicate a compelling picture of the future that inspires and motivates others to take action. Leaders at Mattel align themselves with Mattel's core values, exhibit leadership competencies and drive for success in our business strategies. In this way, we will work to achieve our vision, "Creating the Future of Play.” Every day as Mattel's 30,000 employees worldwide strive to realize that vision, our leadership team is guiding the way

17. #1. Mattel World’s largest toy company Barbie Generates 80% of revenue sales Hot Wheels American Girl Polly Pocket Matchbox

18. Problems for Mattel August 2,2007: toxic toy scandal: Recalled almost all Chinese made toys, potential hazard of being colored with lead based paint Was up to 11% lead in some U.S. allows for .06% August 14,2007: recalled over 18 million products Small magnets in toys can detach allowing kids to swallow these items September 4,2007: recalled 530,000 affected toys in U.S. and 318,000 outside of U.S. because of levels of lead June 5, 2009: Consumer Product Safety Commission fined Fisher-Price division $2.3 million for violation of Code 16 of Federal Regulations for lead paint

19. Mattel: Effects and Response Effect on Mattel: Fortune Magazine rated the recall of Mattel’s products The “dumbest moments” in business of 2007 Increased audits and testing of all products Took full responsibility of magnet recall Closed its last American factory in 2002 2007 primarily manufactured by subcontractors in Asia

20. #2. Hasbro Board Games Monopoly Candy Land Scrabble Trivial Pursuit Pictionary Recently, Cranium Inc. for $77.5 million 2nd largest global toy maker Long-lasting toy franchises since the 1920s Mr. Potato Head G.I. Joe Transformers My Little Pony

21. Hasbro Manufacturing Out sourced the manufacturing of their products, mostly to China Hasbro doesn’t directly own the factories 2007: factories investigated by a workers right group Found 1000 junior high students working there, they now send independent auditors since they do not have control over this Outside China- Hasbro owns and operates two manufacturing facilities one in Waterford, Ireland, other in East Longmeadow, MA

22. Hasbro Recalls 2007: Recalled 985,000 easy bake ovens, children would get their hands caught in them 2008: Recalled 330,000 Nerf Guns, they could cause bruising, abrasions, pinching, blood blisters and welts

23. #3. Bandai Business Philosophy: to provide timeless entertainment through endless creativity 3rdlargest toy manufacturer Based in Japan Popular video games for Nintendo Sega PlayStation Game Boy Wii Xbox

24. Bandai Recalls February 2010: Tales of Graces: a Wii game due to glitches January 2007: 173,816 video game consoles as a result of or faulty cords that can cause burns and smoke

25. Bandai International European Region: Works closely with U.S. Goal of expanding their sales channels intoEastern Europe. North American Region: Products for boys is their focus Power Rangers

26. #4. Lego 1934, Danish toymaker Ole Kirk Christiansen 1st line of wooden toys, then produced plastic bricks (legos) Popular culture phenomena Star Wars Harry Potter

27. Lego’s Philosophy “Good Play” enriches a child’s life – and its subsequent adulthood. Developed and marketed a wide range of products, all founded on the same basic philosophy of learning and developing–through play.

28. About Lego Products sold all over the world One of the world’s largest toy manufacturers, and largest in construction toys Began in 1932 Took the first two letters of the Danish words LEG GODT, meaning “play well”, and put them together There are about 2,350 different elements, plus 52 different LEGO colors Total number of active combinations is more than 7,000 LEGO brick was acclaimed “Toy of the Century” –by Fortune Magazine and by the British Association of Toy Retailers

29. International Relocation began in 2006 LEGO Group has production facilities in Denmark, Eastern Europe and Mexico. The new production facilities in Mexico and Eastern Europe have been chosen for their proximity to the Group’s main markets in Europe and the USA. The most specialized and skills related LEGO products will still be manufactured at the Group’s Danish plant in Billund in order to preserve important skills in molding, processing and packing within the group’s own organization.

30. Fun Facts Laid end to end, the number of LEGO bricks sold in a year would reach more than five Times round the world The world’s children spend 5 billion hours a year playing with LEGO bricks On average there are 62 LEGO bricks for every person on earth

31. Recalls 2002-2003: Lego Explore Super truck Wheels can separate from truck (potential puncture hazard to children) April 8, 2009 and May 6, 2009 :Power Functions IR Speed Remote Control Remote controls heating up

32. #5. Tiger Electronics American electronic-toy manufacturer Subsidiary of Hasbro Handheld games Furby Giga Pets Leading electronic toys for: Star Trek Neopets Barney Jeopardy Who Wants to Be a Millionare? Winnie the Pooh

33. Tiger Electronic Recalls -August 2009: Pooh Poppin' Piano: top of the microphone breaking off

34. Common Trends AmongMajor Players Organic & Green Toys Eco-friendly raw materials from reused & recycled materials Interactive and Digital Toys Computerized-virtual world Budget Toys Basic, nostalgia i.e. remote controlled cars Movie Toys Movie-licensed toys Iron Man, Superman, Batmam

35. Minor Players Fisher-Price Leap Frog Playskool

36. Minor Players International All 3 of these minor players are traded internationally Fisher-Price Sold in North America and most European, Latin American, and Asian countries and also in Australia, Canada and New Zealand LeapFrog Products are available in 4 languages in more than 44 countries and in more than 100,000 classrooms in the U.S. Playskool U.S., Canada, Europe, Asia, and South America; in 2009 expanded operations in Brazil, China, Russia and Korea by pushing main brands such as Playskool

37. Fisher-Price Headquarters: East Aurora, NY Infant toys Subsidiary of Mattel, Inc. (1933) Products Little People toys Power Wheels Others: Disney, Sesame Street, Barney, Dora the Explorer, & See ‘n Say

38. Leap Frog Most engaging & effective learning experience for all ages Tag, Tag Jr., Zippity, Scout, Leapster Based in Emeryville, CA Leading designer, developer, & marketer of innovative, technology-based educational products world-wide

39. Playskool American company; headquarters in Pawtucket, RI Subsidiary of Hasbro Educational toys & games for children Mr. Potato Play-Doh Tonka Tinker Toys Lincoln Logs Weebles Gloworms

40. Minor Players—Sales Revenue

41. Fisher-Price 2009 Fisher-Price business unit sales Worldwide gross sales- 2.17 billion, down 8 percent Fisher-Price brands made up 36.7% of Mattel’s 2009 sales

42. LeapFrog Enterprises 2009 Sales Total Sales- 379.8 million, down 17.3% from 459.1 million Web Sales- 19.2 million, up 20% from 16.0 million in 2008 Total International Sales- 73.4 million, down 23.3% from 95.7% million Net loss was 2.7 million, versus a net loss of 68.4 million in 2008

43. Playskool 2009 Sales Hasbro- global net sales- 4.07 billion Net earnings- 375 million Playskool made up 11.1% of the revenue made in 2009

45. Line of classic children’s toys constructed from recycled plastic & other environmentally friendly materials.

46. Helps reduce fossil fuel use and greenhouse gas emissions

48. The Toy Industry Productions and Operations: US & International:Value Chain Model Management

49. Outsourcing 70% + toys are manufactured in China Reasons for Outsourcing: Experience-specialization Fast-track response  quick opportunities emerge Save money & time Market Intelligence3rd party research on market trends

51. Req. by USA brands

52. Relocation of factories to cheap, remote area

53. Hiding bad practicesRecall of 45 million toys imported from China Consumer Product Safety Improvement Act Passed: August 2008 In-Effect: February 2010

54. Social Responsibility AKA Corporate Social Responsibility Complexities in international business: Balancing the idea of a global stance on social responsibility against the local conditions that may compel differential approaches in the various countries where a firm does business

56. 2006 RECALL TIMELINE for MATTEL

57. MAGNETS 71 Makes/Models were recalled normally used for industrial purposes that can easily come loose could easily ingest the parts and have them bond together along their digestive tract if several magnets were swallowed they would pull together in the stomach and rip through stomach tissue Recalled toys: Polly Pockets, Batman action figures, and Barbie and her dog Tanner

58. LEAD PAINT 91 Makes/Models were recalled Elevated levels have been shown to create learning and behavioral problems, slow muscle and bone growth, hearing loss, anemia, brain damage, seizures, coma, and in extreme cases, death Mattel had previously given manufacturers in China a list of eight paint suppliers that they could use, but in order to cut costs, subcontractors used unapproved suppliers. In some cases the lead content was over 180 times the legal limit Recalled toys: Many of the toys coated with lead-based paint were from Mattel’s Fisher Price line

61. Hasbro Recalls Playskool Team Talkin' Tool Bench 9/22/06 -Suffocation hazard- toy nails may become forcefully lodged in the back of children's throats. Easy-Bake Oven 7/19/07 -Entrapment and burn hazard. Cranium Cadoo Board Game 1/17/08 -Surface paint on die contains excessive levels of lead.

62. Mattel’s Product Safety At Mattel, the safety of our toys is our number one priority. We create and produce some of the world's most beloved toys and brands for children, and we know that with this comes the responsibility to ensure quality and safety. We strive to sustain the trust of consumers by employing strict standards that extend from product design to manufacturing and through distribution. Mattel applies internal operating procedures designed to meet or exceed compliance with regulations and laws enforced by the U.S. Consumer Product Safety Commission (CPSC), and their regulatory counterparts around the world. If questions ever arise about a product, consumers can contact Mattel directly at our Consumer Relations Call Center. In addition, consumers can make contact 24 hours a day via the company's Consumer Relations Answer Center website. Learn more about our approach to product safety: Go to the 2009 Global Citizenship Report

63. China’s Temptation Lead paint is cheap & China is under extreme cost pressure Lead added to paint speeds up the drying process and enhances moisture resistance, thus reducing corrosion and mold.

64. The Producer Using Lead Lee Der Industrial Company Mattel allowed them to hold their own inspection tests Mattel Trusted Lee Der through a 15 year relationship they had with them Mattel also conducted random audits of Lee Der’s testing records as well as some of the products themselves In fact the Lee Der had inadequate controls over their supply chain. Turns out they had received a shipment of yellow paint, not knowing it contained toxic lead compounds Chinese regulators believe that the paint supplier provided Lee Der with false quality of inspection documents. As well as Lee Der’s lead detecting equipment failed to detect the presence of lead Mattel doesn’t know which of 3 supplier passed the paint

65. Fixing the problem Objective 1: Get all information about the recall to the public accurately, quickly, and efficiently.Objective 2: Reassure consumers – especially parents – that Mattel is committed to making safe toys, fixing the problem, and being open and honest.Objective 3: Take responsibility for the recall. Solve the problem while maintaining a stable relationship with China.

66. How Mattel Handles RecalledProducts Involving Magnets

67. How Mattel Handles RecalledProducts Involving Lead Paint

68. Summary and Conclusion Background of the toy industry Small vs. large and US vs. International companies Major Players Common Trends Among Major Players Minor Players Innovations Productions and Operations Outsourcing Ethics and Social Responsibility Product Recalls Recommendations

69. Any Questions???